Headline inflation was driven higher in June by resurgent energy costs, as the Consumer Price Index increased 0.5% during the month. The one-year change in the CPI also rose from a May reading of 1.4%, reaching 1.8% in June.
Core inflation also accelerated in June, but at a more sedate 0.2% pace. The year-over-year change in core CPI slipped to 1.6% in June, a modest slowdown from the prior month.
The Fed has recently downplayed the low inflation readings, citing temporary influences that are keeping price pressures at an unsustainably low level. Core inflation, as well as expectations for future inflation, will remain squarely in the focus of economists and investors searching for clues about the potential for the Fed to reduce its ongoing bond purchase policy.
Despite the Fed’s ongoing efforts geared toward spurring more rapid growth, inflation has remained very much in check, having even been in a predominantly downward trend since late 2011. Given the Fed’s 2.0% inflation target, this gradual decline in in the CPI suggests that the central bank has plenty of leeway to remain aggressive in the execution of monetary policy.
The recent uptick in inflation notwithstanding, unemployment still remains elevated. Given the restrained pace of economic growth, the likelihood of an unacceptable spike in inflation or a sharp decline in the jobless rate in the near-term appears unlikely. The Fed’s most recent estimates for growth in the second half of the year still look optimistic. It’s certainly possible that they could begin tapering their bond purchases later this year, but the absence of higher inflation and the stubbornly high jobless rate suggests that it may not need to do so in the near-term, particularly if those growth expectations fail to materialize.
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